What's an income worth?

What's an income worth?

They say a dollar is worth what you can get for it. I went searching the internet this morning for a graph of median US income 1900 -- 2008 and couldn't find one, probably because that's like panning for gold without a pan -- I am sure our economics whizzes at Angry Bear or Economist's View would know right where to find this data.

But perhaps, because of changing circumstances, comparing constant dollar income from the beginning to the end of the century is a moot exercise, measuring something that doesn't translate in a meaningful way.

There was a time when dollars were much bigger in terms of what they could buy. Around the turn of the century, the blue plate special, a cheap restaurant meal, was described as "a square for two bits" -- twenty-five cents for a plate with typically one meat, two veg and a potato or other starchy serving. Today, the price for the same thing in a bare-bones diner would not be less than ten times that amount, but usually closer to twenty times the price.

Well, inflation. Yes, but tracking the proportion of this number to income, to the alternative cost of food elsewhere, comparing the luxury value of a diner meal versus a home-cooked chop, and the time available to the humble worker to get home and cook that chop -- so many factors come into judging the actual cost of the meal, that it might not be possible to say if the meal is more or less expensive in a dollar sense.

But if the value is alloted in tau (t), we arrive at a value that will be consistent over centuries. Individual human effort and attention is pretty constant, and time is fixed.

Abandoning the blue plate special to its gelid fate, let's look at what a single wage-earner's tau could support, 100 years ago.

I lifted the following comment of mine from Echidne of the Snakes, here, where another commenter begins:

Most of these houses originally had live-in servants on the 3rd floor and a relative or 3 in addition to parents and children.

And I replied:

[I found it] interesting to read a book from around the time of the US Civil War (by Scottish author George MacDonald) which remarks that the main character, a child, is "all alone in the house", and then find out a page later that there's a cook in the kitchen, a housemaid in the scullery, and a nanny upstairs. "Alone", indeed.

And a mile from my home is a run-down set of apartments (circa 1910) that were intended for young gentlemen just setting out in the world, with a bedroom, living/dining room, screened porch, bathroom and kitchen, and back beyond the kitchen, another bedroom for the young gentleman's manservant!

What this tells me is that, only 100 years ago, a single employed person, even a young man in his first job, made enough money to support one other person, or in the case of the household with the child who was "alone", six people of whom only one was a wage earner.

It's little literary details like this that show me how very far the ratio of remuneration to labour has fallen, in terms of what you can do with it. Can you imagine how much an employed husband would have to earn these days, to support a household of his wife, child, and three other adults?

Meanwhile, the people who used to be the house-servants are still at the same or a lower rate of pay, but without the room and board of the 1900s. Want fries with that?

Noni

~would quite like a housemaid or ghillie~

I will return to this double comparison -- a young unmarried worker then and now, and an older established worker (a bank manager, I think he was) with a wife and child, then and now -- to examine the movement of tau in the households. Clearly, in 1900 the available tau in a usual household was much greater for a given employment income. What this tells me is that no matter what the constant dollars might say, employment income today is less -- perhaps 1/4 to 1/8 -- of what it was at the turn of the other century.

Tear it down, boys [Updated]

There's an old joke that goes like this: A carpenter, heading up the crew of builders, comes to his foreman with a puzzled look, and asks him, "Charlie, remind me again. When we build this house do we start from the bottom and build up, or from the top and build downwards?"

"Why you idiot," growls the foreman, "From the bottom up, of course!"

The crew chief goes back to his men and says, "Sorry guys. We gotta tear it down and start over."

==========

In the last post, I asked you to try a simple thought experiment: in a small nation of 100,000 people, an angel comes at night and offers the lowest paid 99% a one-year, all expenses paid vacation in heaven. They happily accept, and when the sun comes up, only the richest 1,000 people remain in the country.

Question: what sort of economy now exists?

Let's also assume that the angel (or djinn, or Trickster, or deus ex whatchamacallit) has also calmed the 1000 so they don't worry about the situation, but just carry on as best they can.

Dancing in empty streets

As I see it, there will be two sorts of results -- what I call transient and steady state. Transient effects are found at the beginning of a new situation, are often extreme, and extinguish quickly. Steady state describes a normal, ongoing situation which will vary rhythmically in intensity and emphasis, but varies around a set level and tends to return to that level.

Our wealthy 1000 will probably spend the first few days finding each other, enjoying the comparative wealth and ease, maybe partying and driving around enjoying the empty streets. They may even develop a premature set of norms, temporary patterns which cannot be sustained, but are adhered to pretty strongly once they're established. These are short transients, supported by novelty.

But soon they will realize that they're in trouble. They have no commerce, for instance. No police, no plumbers, no workers except for themselves. In a way this is fine because they're still living off the wealth the other 99% have left behind, but things will soon begin to need maintenance. We can assume the 1000 are bright and capable, but 1000 people are just not enough to keep roads, bridges, power plants, sewers, elevators and all the vast machinery of a city operational, even if all 1000 had all the skills and strength needed.

So the 1000 will come together and discuss what to do, and I imagine they will decide to regroup to an area where they are up to the job of maintaining the infrastructure -- at least for the next few months.

Who pours the coffee?

So they move to a smaller area, and begin to get tired of camping out.

It's been fun, but sooner or later you want to stop camping and go back to normal. Since these people are usually more wealthy than anyone else they know , "normal" includes hiring people and having people to do things.

I predict that as soon as the short transient begins to wear down, there will be some abrupt changes in who does what, and why. Not for money, that's for sure.

Any thoughts?

Noni

UPDATE:

It seems to me that "the tip of any pyramid is another pyramid". The Tip in itself is (or can be) another social pyramid complete with rich and poor and workers and loafers -- but on its own the Tip cannot live as it did when it was still part of the larger pyramid.

The logical deduction is that, whatever else the Tip might be, it cannot be the source of value -- or at least , not enough value to support the rest of the pyramid.

Coming up: "Pantomime horses and other economic models".